(Image via @Suncor on Twitter.)
The ongoing effects of the market share battle between Russia and Saudi Arabia that is pushing oil prices lower, coupled with the COVID-19 pandemic, is having a significant impact on one of Canada’s largest integrated energy companies.
Seeing a lower demand for its retail fuel,
Suncor Energy Inc. (TSX: SU) announced this week that it will cut its 2020 capital spending budget by $1.5 billion (CAD) (or 26%) to between $3.9 billion to $4.5 billion.
In a statement, Suncor CEO Mark Little said that the simultaneous supply and demand shocks are having a significant impact on the global oil industry.
“We are adjusting our spending and operational plans to be prepared in the event the current business environment persists for an extended period of time.”
Suncor is turning toward a “value over volume” strategy, which is intended to maximize its upstream production through its upgraders and refineries, while reducing exposure to Alberta bitumen prices. This would result in higher per barrel margin, even though unit costs could be higher.
“Our business model and financial strategy are designed to withstand volatile environments,” he added.
Reflecting the significant decline in crude oil prices, the Calgary-based producer and refiner has put several of its projects on hold, including:
- $1.4 billion installation of two cogeneration units at its northern Alberta Oil Sands Base Plant that would have reduced greenhouse gas emissions
- $300 million wind power plant in southern Alberta
However, Suncor is going ahead with its project to connect pipelines between its base plant and the Syncrude oilsands nearby, as well as its project to deploy driverless haul trucks at its Fort Hills oilsands mine.
The company’s news statement also said that shipping crude by rail is now “uneconomic” and it has excluded production volumes associated with rail transportation from its guidance, which means some assets will operate at “less than efficient rates.”
This follows recent news from
Teck Resources Limited (TSX / NYSE: TECK) who plans to
withdraw its massive $20 billion Frontier Project in northern Alberta from the regulatory review process. Meanwhile, Canadian integrated oil and natural gas company
Cenovus Energy Inc (TSX: CVE) also announced that it is
reducing its 2020 capital spending by approximately 32% and temporarily suspending its crude-by-rail program and deferring final investment decisions on major growth projects. Oil and gas service provider
Precision Drilling Corporation (TSX: PD) released news this week that it will be
lowering its spending plan to $48 million (down from $95 million).
What implications does this have for the future of Canada’s oil industry? Let us know in the comments below.
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